The K-shaped economy — a term that became shorthand during the pandemic for a widening divide between affluent and struggling households — may be losing its grip, according to Treasury Secretary Scott Bessent and a batch of fresh data. But not everyone is convinced the letter has changed.
“I got sick of hearing about this K-shaped economy,” Bessent told CNBC’s “Squawk Box” earlier this month. “I can say here definitively, the K-shaped economy is over.” Instead, he said, “We’re seeing more of a ‘C’ economy where the lower end of wage earners are finally clawing it back.”
The analogy is literal: In a K-shaped recovery, the arms of the letter diverge, with higher-income households pulling ahead while lower-income households fall behind. A C-shaped economy implies convergence, with the two ends drawing closer together.
Some recent data supports that shift. According to the Bank of America Institute, lower-income households saw after-tax wages grow at a 5.2% annual pace in July, outpacing growth for higher-income households for the first time since December 2024. Debit and credit card spending also converged across income groups last month, with lower-income households’ spending up 5.4% year over year in July, buoyed by stronger after-tax wage growth and ahead of middle-income households’ spending growth.
That kind of broad-based gains could signal a meaningful change in how economic strength is distributed, some experts said. Instead of growth concentrating at the top, it may be spreading more evenly.
Stress beneath the surface
But the headline numbers may overstate the improvement. Economists caution that lower-income consumers are not necessarily gaining ground, and credit data shows signs of strain.
“For those lowest-scoring consumers, we are seeing slight upticks in the 90-plus delinquency rate for mortgage and auto loans,” said Ethan Dornhelm, FICO’s vice president of scores and predictive analytics, referring to borrowers who are 90 days or more past due.
At the same time, even higher earners are feeling the squeeze. “They are dialing back some of their spending and being more cautious with how they spend, where they spend their money,” said Gregory Daco, chief economist at EY-Parthenon.
Housing affordability has emerged as a major pressure point, nearly eclipsing gas prices as the second-largest source of financial stress behind groceries, according to a new J.D. Power report. FICO’s latest Credit Insights shows the average first-time homebuyer’s monthly mortgage payment hit $2,563, up 57% since April 2019, far outpacing the 30% general inflation rate over that period.
Homeownership costs are taking a toll: 43% of homeowners said their total monthly housing costs have made it harder to keep up with other expenses, per a FICO survey of 2,078 U.S. adults conducted in July. Atlanta Fed data also shows home affordability has declined since the start of the year and has remained depressed since 2022, when mortgage rates began climbing.
Student-loan repayment adds another layer of strain. FICO found that 56% of borrowers said it pushed them to rely more heavily on credit cards or other loans to cover bills over the past year.
What comes after ‘C’?
Some economists argue the alphabet may not stop at C. An E-shaped economy would describe three tiers: high-income households, a squeezed middle, and a struggling bottom. An X shape could emerge if lower-income spending growth persistently outpaces that of higher-income households, a scenario David Tinsley, senior economist at the Bank of America Institute, called “a slight risk.”
“It seems that lower-income household spending growth could accelerate past higher-income households for a time, and so we could actually be talking about a crossover,” Tinsley said.
A stock market downturn could flip that dynamic, though, since higher-income households are more likely to own stocks. If they pull back on spending, that “could become a key catalyst to slower consumer spending growth and an economy that might be stalling,” Daco warned.
Beyond the letters, some economists say age and life stage may be more telling than income. Struggling Gen Z consumers in their 20s face different pressures than Gen X, the mid-career cohort roughly in their mid-40s to early 60s, who are also feeling a financial squeeze. Housing costs weigh particularly on younger Gen Z renters, while Gen X consumers are juggling support for children, aging parents, and retirement savings, according to Dornhelm.
“I think there might be an age dimension coming into the discussion,” Tinsley said. “I think we are kind of broadly done with the alphabet.”
Source: www.cnbc.com — https://www.cnbc.com/2026/08/25/k-shaped-economy-c-shaped-economy-may-be-changing.html
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